Vistage CEOs Foresee Stagnating Pace of Economic Growth

SAN DIEGO, July 12, 2011 /PRNewswire/ -- The pace of economic growth has slowed significantly since the start of 2011 and the slowdown is expected to continue into the start of 2012, according to a survey of CEOs of small-to-medium-sized businesses. The Vistage CEO Confidence Index was 92.9 in the Q2 2011 survey, substantially below the 105.2 posted in Q1, and erasing all the gains recorded since 93.7 was registered in Q1 2010.  Though declines were present in every major survey component, the largest losses were in evaluations of the overall economy.  Rather than expecting a renewed economic downturn, the majority of CEOs anticipated a stagnating economy: growth too slow to support robust gains in employment or investment, and resulting in lower revenue and profit levels than previously forecast.  Half of all firms put planned investments on hold due to the slowdown in economic growth.

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According to Vistage International Chairman of the Board and CEO Rafael Pastor, the Q2 results reflected a deepening concern about the pace of economic growth.  "The results clearly reflect declining confidence in the overall economy.  But don't expect these CEOs to sit on their hands," Pastor said.  "Many companies will increase sales through more exports and online marketing, while others will be reviewing their options on the merger and acquisition front."  

The nationwide survey of 1,719 Vistage member CEOs was conducted from June 14-24, 2011. The Index is directed by Dr. Richard Curtin, Research Professor at the University of Michigan and the Director of the Consumer Sentiment Surveys at the Institute of Social Research.  He has directed the Vistage CEO Confidence Index Survey since its inception in 2003.  Dr. Curtin provided the following analysis of the first quarter 2011 results:  

Economic Growth Falters. Just 37% of all CEOs in the Q2 2011 survey reported that the national economy had improved, down from 63% in Q1.  Most of the shift was toward the view that economic conditions had remained unchanged. When asked about economic prospects for the year ahead, the proportion that anticipated improvement dropped to 31% from 50% in the prior quarter. Rather than anticipating renewed declines, the majority of CEOs in the Q2 2011 survey anticipated a stagnant economy; just 17% expected the economy to actually worsen. On balance, positive economic growth was still anticipated in the year ahead, with few firms expecting a renewed economic downturn.

More Cautious Investment Plans. Planned investments in new plants and equipment were reported by 42% of all firms in Q2 of 2011, between last quarter's 48% and last year's 37%. As an indication that firms expected a growth slowdown rather than a renewed recession, just 13% reported that they planned to decrease the overall level of investments. Nonetheless, most firms were more cautious about expansion of their productive capacity, preferring to hold planned investments at current levels. Inventory investments were also more likely to be reduced than increased in Q2 by a three-to-one margin.

Fewer Permanent Jobs. Net increases in employment were planned by 49% of all firms in the 2nd quarter, below the 54% recorded in each of the prior two quarters. Just 8% planned to reduce employment.  Importantly, other than for the last two quarters, employment gains were planned by the highest proportion since late 2007. Uncertainty about demand for their products or services, the economy, regulations, and future tax liabilities were voiced by nearly three-in-four firms when asked about their hiring strategies. As a result, CEOs were evenly split between planned permanent and temporary additions to their workforce.

Revenue Prospects Slip. Revenue growth was expected by 68% of all firms in Q2 survey, below the 76% in the prior quarter, retreating to the levels recorded a year earlier. Just 7% expected declines in revenues. Anticipated revenue gains were largely due to increased sales, since 53% expected flat or declining prices for their products or services. Finding and retaining customers remains a top priority.

Profit Outlook Dims. Increasing profits were anticipated by 50% of all firms, below last quarter's 57% and last year's 54%, falling to the lowest level in two years. The anticipated squeeze on profits was due to expected increases in the cost of materials and salaries, higher taxes and regulation burdens, slowing economic growth, and an inability to raise prices. Actual declines in profits, however, were only expected by 15%, the same as a year ago, and less than half the 34% recorded at the start of 2009.

about the Vistage CEO Confidence Index

The quarterly Vistage CEO Confidence Index, established in 2003, is the nation's largest and most comprehensive report of the opinions and projections of small-to-medium-sized business CEOs about the U.S. economy.  Since its establishment in 2003, the Index has proven to be a leading indicator for changes in GDP and Employment, two to three quarters hence.

about Vistage International

Founded in 1957, Vistage International, Inc., headquartered in San Diego, California, is the world's leading chief executive organization, serving nearly 15,000 members in 15 countries.  Vistage member CEOs participate in Chair-led advisory board peer groups, receive one-to-one coaching, learn from expert speakers, and interact among a global network of CEOs from a broad range of industries.  

SOURCE Vistage International, Inc.